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Defence White Paper funding unclear

Promising new troops and submarines is all very well, but where is the money going to come from? Professor Nick Bisley explains.

First published on The Lowy Interpreter on 4 March, 2016.

Among defence and security wonks the release of a new Defence White Paper always
prompts Talmudic parsing of the text. Three such papers in the last
seven years has proven especially rich pickings for those with such a
disposition. Unsurprisingly, thus far the bulk of the reflection on the
latest paper has been about the big ticket items: the large capital
outlays on high-end kit, the strategic disposition of the country and
the country's capacity to match strategic ends and means.

Although domestic politics has been part of the conversation
(principally focused on the impact of the leadership change from Abbott
to Turnbull), the broad ranging bipartisanship about the direction of
strategic policy and the importance of a militarily capable Australia
has clouded from view the fact that this Paper marks a significant step
in domestic electoral messaging for the Liberal-National Coalition, one
the Coalition itself may not have noticed.

At the risk of over-simplifying, since at least 2001, the Coalition's
electoral success has rested on two pillars: economic probity and a
robust approach to national security. The ALP is driven to distraction
by the Coalition's ability to convince electors that it is a better
economic manager than its opponent. That conservatives are almost
hard-wired to fiscal rectitude and economic prudence has become an
article of faith among their core supporters and indeed appears to be a
widely held belief, according to pollsters. Equally, whether in relation
to illegal boat arrivals, terrorism or more conventional defence and
security matters, the Coalition has been remarkably effective at
converting a complex security environment into popular support.

The Labor government elected in 2007 was acutely aware of its
perceived weakness in both these key policy areas and did its utmost to
reverse this perception. This was an important part of the 2009 Defence
White Paper's commitment to a much more muscular posture and the big
financial commitments to support 'Force 2030'. Labor's misfortune was
to be at the helm when the greatest crisis to have hit the global
economy broke in 2008.

As a result of the GFC, and the decision to adopt large scale
Keynesianism to see off recession, Labor had to walk away, economically
speaking, from its 2009 ambitions. This opened the door that allowed
Tony Abbott's Opposition to argue that Labor 'always cuts defence' and
to pursue the same core electoral message of the successful Howard
years.

Upon coming to office, the Abbott Government set about making good on
its claims by embarking on a new White Paper which would right the
purported wrongs of ALP stewardship of defence. The centrepiece was an
almost blind faith in the need to ramp spending up to 2% of GDP, a
figure noted by many as magical in its qualities and not in any
substantive way tied to strategic policy. It was of course a strong
symbolic commitment and, notwithstanding the change in leader from
Abbott to Turnbull, has been retained in the latest Paper.

Sensibly the Paper attempts to decouple spending from GDP, but
nonetheless their remains a substantial financial commitment at the
centre of the Paper. It's a commitment that sits uneasily with the
Coalition's core electoral message. To put it bluntly, the Turnbull
Government will find it difficult to argue that it is both fiscally
prudent and tough on defence. Much of the new Paper frames the spending
in terms of its ability to foster local industry, contribute to
innovation and revive Australian shipbuilding. One cannot escape the
conclusion that the Coalition has tried to put the most positive
economic spin on a policy approach that does not resonate with its
economic policy ambitions.

The White Paper goes to great lengths to say that the costs of the
projected program have been independently verified, and we have no
reason to doubt this. But it is entirely silent on how all this spending
will be paid for. Given ever-growing demands on social services and
health costs, the eroding tax base and projections of a long period of
slow global economic growth, this absence is striking.

The problem that seems to have eluded Coalition strategists is that
the Howard era formulation of a strong national security posture and
fiscal prudence was only possible because of unique circumstances in
Australian economic history. The GFC and the end of the commodity super
cycle will impose difficult choices for the Coalition. How will the
government be able to sell the requisite tax increases or expenditure
savings necessary to pay for this Paper? It will either have to take the
ALP's position and squib on its ambitions, make extraordinarily
difficult political decisions or borrow like crazy and hope the military
Keynesians are right.